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managed accounts were opened, enabling CIHI’s customers to hide their association with CIHI and continue to market time mutual funds. CIHI also provided financing to customers knowing that managed accounts CIHI established would (and did) late trade mutual funds.

47.

As a result of the conduct described above, CIHI willfully violated Section 10(b) of

the Exchange Act and Rule 10b-5 thereunder, which prohibit, in connection with the purchase or sale of securities, the use of any manipulative or deceptive device, including any device, scheme or artifice to defraud; making any untrue statement of material fact or omitting to state a material fact when doing so makes the statement made misleading; or engaging in any act, practice or course of business which operates or would operate as a fraud. CIHI actively participated in a fraudulent scheme by financing hedge fund customers knowing those hedge funds would use CIHI’s financing to deceptively market time and late trade mutual funds. Moreover, CIHI went to great lengths to hide CIHI’s and its customers’ market timing activities. For example, CIHI created seemingly unaffiliated subsidiaries and hedge funds in whose name managed accounts were opened, enabling CIHI’s customers to hide their association with CIHI and continue to market time

mutual funds. CIHI also provided financing to customers knowing that managed accounts CIHI established would (and did) late trade mutual funds.

48.

As a result of the conduct described above, CIHI willfully aided and abetted and

caused violations of Rule 22c-1, as adopted under Section 22(c) of the Investment Company Act,

which requires certain mutual funds, persons designated in such issuers’ prospectuses as authorized to consummate transactions in any such security, their principal underwriters, or dealers in the funds’ securities, to sell and redeem fund shares at a price based on the current NAV next computed after receipt of an order to buy or redeem. Specifically, CIHI financed certain customers, and opened managed accounts at STC for certain customers, knowing those customers

would (and did) use CIHI’s financing to late trade mutual funds. In doing so, CIHI substantially assisted violations of Rule 22c-1.

49.

As a result of the conduct described above, CIHI willfully violated Section 7(d) of

the Exchange Act and Regulation U promulgated by the Federal Reserve Board., which prohibits, inter alia, the unlawful extension of credit. Regulation U prohibits a person other than a broker- dealer (i.e., a lender) from extending credit for the purpose of buying or carrying margin stock if the credit is secured directly or indirectly by margin stock, in an amount that exceeds the maximum

loan value of the margin stock, which is 50% of its current market value. As noted above, CIHI extended credit to hedge fund customers in excess of 50% of the margin stock’s value through what it characterized as TRSs to market time mutual funds.

World Markets Violated the Securities Laws

50.

As a result of the conduct described above, World Markets willfully violated

Section 17(a) of the Securities Act, which prohibits fraudulent conduct in the offer and sale of

securities. Section 17(a) of the Securities Act makes it unlawful for any person in the offer or sale of securities to employ any device, scheme or artifice to defraud; to obtain money by means of any untrue statement or omission of material fact; or to engage in any transaction, practice or course of business which operates or would operate as a fraud or deceit upon the purchaser. World Markets

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